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Best Brokers Offering Sustainable Stocks

Written By

James Barra

Written By

James Barra

James is an investment writer with a background in financial services. He has worked as a management consultant, where he delivered large-scale operational transformational programmes at some of Europe's biggest banks. James authors, edits and fact-checks content for a series of investing websites.

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Edited By

Jemma Grist

Edited By

Jemma Grist

Jemma is a writer, editor and fact-checker focused on retail trading and investing. Jemma brings a unique perspective to the forex, stock, and cryptocurrency markets and works across several investment websites as a researcher and broker analyst.

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Fact Checked By

William Berg

Fact Checked By

William Berg

William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.

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Updated

Jul 24, 2024

The best brokers offering sustainable stocks trading and investing are capitalizing on the increasing prominence of social and environmental issues within the public consciousness. Climate change, deforestation and other environmental factors threaten our world while society pushes for greater equality and inclusion, so many investors are looking to use their capital as a power for good by investing more ethically in stocks, indices and ETFs.

This guide explores some of the concepts underlying the best brokers offering sustainable stocks, before outlining their pros and cons.

What Are Sustainable Stocks, Indices & ETFs?

What Does Sustainable Mean?

Many people and institutions have different definitions of what qualifies a stock, index or ETF as sustainable.

Broadly, sustainable investing is described as putting capital into a stock or group of stocks that prioritise the environmental, social and governmental challenges our world faces. These considerations are often abbreviated to ESG, and over $30 trillion is held within ESG assets globally.

Many of the best brokers offering sustainable stocks will use ESG measurements to inform their ratings.

Sustainable companies include those that tackle these issues head-on, who aim to combat issues such as the overuse of natural resources, rising levels of pollution or the effects of increasing urbanisation head-on.

Examples of these assets would be companies that provide sustainable energy or sell sustainable energy solutions, such as solar panels, to consumers.

If the concept of solar energy is particularly appealing to an investor, it is possible to invest in a pre-compiled selection of solar-focused companies through an ETF.

Included businesses will be involved in all stages of solar power production, from the development, manufacture and sale of solar energy products to companies that use solar farms to generate sustainable energy.

What Is A Sustainable Stock?

Sustainable stocks are publicly listed companies that can directly focus on sustainability or encompass sustainable values and principles into their business model.

Single sustainable stocks correspond to a specific business or consolidated group of businesses and are usually traded on their local stock market.

By investing in a sustainable stock, investors will own part of the business and can receive dividends based on the performance of the company and the share price.

What Is A Sustainable Index?

The best sustainable stockbrokers will likely also have indices on their asset lists.

These are groups of stocks bundled together by either theme or ESG rating, designed to provide a broad view of the overall performance of the area. Indices can range from broad, whole market spreads or smaller, more specialised groupings.

In addition to tracking and comparing the performance of groups of companies, investors can use indices for balanced and diversified investing. Index funds allow investments in every stock in an index, passively tracking the performance of the whole index.

What Is A Sustainable ETF?

A sustainable ETF, or exchange-traded fund, is fairly similar to an index fund but with a few key differences.

Indeed, ETFs can track indices, functioning as index funds, but they can also track non-indexed sectors, commodities or assets like cryptocurrency or real estate. ETFs can even offer ready-made leveraged investment or stock short selling. ETFs differ from mutual funds as they trade like stocks, with changes to the share price of an ETF occurring throughout the trading day.

In terms of sustainable investing, ETFs can offer a diverse range of options. Like a sustainable index, stocks in an ETF are grouped for investment, though they typically offer more choice and variety in a particular field of sustainable investment.

Which Sustainable Investing Option Is Right For Me?

When looking towards environmentally conscious and ethical investing, the best brokers offering sustainable stocks, indices and ETFs should be on your mind, but which one is right for you? Different investors will have different needs and desires, so here are a few aspects to consider when comparing sustainable instruments:

Availability

One element where sustainable stocks and ETFs are superior to indices and traditional funds is availability. Sustainable stocks and ETFs can be traded freely during market hours, while fund dealing only happens at the end of the trading day.

Top brokers offer a wide range of sustainable stocks and ETFs to invest in, while some do not offer funds or sustainable indices, limiting options for would-be traders. Of those that do, there are often minimum deposits required to set up a fund account, while stock and ETF brokers will largely be free from such constraints.

Flexibility

The best brokers offering sustainable stocks and ETFs will facilitate fractional share investing, allowing partial stocks and ETFs to be purchased.

Furthermore, sustainable indices and mutual funds can only be bought and sold at the end of each trading day, often with significant delays to prices. This can leave investors powerless and at the mercy of intra-day stock fluctuations. Stocks and ETFs can be traded throughout the day, according to the opening times of their specific market.

Choice & Selectivity

For investors who wish to handpick their investments, sustainable stocks are the best way to facilitate the creation of a selective portfolio.

Investing in individual stocks allows investors to actively manage the proportions allocated in their portfolios to each company. It is thus much easier to omit sustainable stocks for reasons of performance, sector or personal opinion when purchasing them individually.

This is less possible with ETFs and indices, where all of the tracked stocks are bundled together.

Ease Of Management

Investors that favour individual sustainable shares over ETFs and funds may find themselves needing to actively manage their portfolio. Index funds and ETFs passively adjust the level of investment in each specific company to match that of their index, while investors who opt for single share investing have to monitor and edit their portfolios independently.

Fees

Each of the options for sustainable investing will have different rates and types of trading fees. With most top brokers, investors will only need to pay general account fees. While some charge clients for buying or selling single shares through admin costs, the best brokers offering sustainable stocks will not charge clients for trading.

Sustainable ETFs and index funds have varying expense ratios, which is a set percentage of an investors’ stake in a fund that is taken by a broker to cover their costs. For index funds and other passively managed funds, these are typically low.

However, for actively managed funds and ETFs, fees may exceed 1%. The top brokers offering sustainable traditional funds won’t charge a transaction fee to buy or sell funds.

Diversification

Even with the best brokers offering sustainable stocks, investing in a single company leaves you at risk of significant losses if that particular company runs into difficulty. The advantage of investing in sustainable indices or ETFs is diversification of investment, leaving investors less vulnerable to single company issues.

Of course, it is possible to manually build a portfolio of single stocks to be diverse. However, investing in an index fund or ETF can allow investors to variegate their holdings far more easily and reliably.

The Bottom Line

It is often a good idea for investors who wish to use the best brokers offering sustainable stocks, indices and ETFs to strike a balance between funds and single shares in their portfolio.

Researching individual stocks and investing in companies that you believe in can be a rewarding and involving aspect of investing. Funds are generally considered less risky investments than single shares given to their diversified nature. The allocation of funds to shares in an individual portfolio will often reflect the extent of risk an investor wishes to take.

Benefits Of Trading Sustainable Stocks

Here are some of the advantages of investing with some of the best brokers offering sustainable stocks and assets:

• Supporting Positive Change – Investing in alignment with personal values is often gratifying, with traders knowing that their capital is supporting the growth of companies with sustainable business models. Whether this is through renewable energy, climate change solutions, health, safety or community development, investing in companies with high ESG scores helps investors see trading and saving as a force for good.
• Performance – A common misconception of sustainable investing is that potential returns are sacrificed compared to non-sustainable investments. However, sustainable indices have historically shown that they are no gimmick.
  The MSCI KLD 400, an index where an extremely high ESG score is required for inclusion, has outperformed the US market over the last 30 years. Since 1990, the KLD 400 provided investors with an annualised return of 10.2%, whereas the S&P 500 achieved an annualised return of 9.7%.
• Future-Oriented – A company with sustainability at its core is already geared towards the challenges of the future. Companies that have less sustainable business models or exist in unsustainable industries may have to adapt or die given the increasing severity of global regulations. For investors, this could mean a diminishing share price and the uncertainty of industry changes. On the other hand, sustainable stocks will often have long term potential, planning for future difficulties well in advance of less sustainability-focused firms.
• Growing Market – Sustainable stocks, indices and ETFs are in high demand from investors, particularly socially conscious millennials. According to a Morgan Stanley survey, 84% of millennials name sustainable investing as a financial priority, which has increased by more than 100% every year since 2012 and totals around 20% of the assets under management in the entire investment industry. The total pool of ESG mandated assets under management is expected to grow to over $50 trillion by 2025. Additionally, the influx of demand for sustainable investment has led to an increase in options for investors. The number of available sustainable investing funds has nearly tripled since 2008, with top brokers offering investors more choice than ever when looking to invest in sustainable stocks, indices and ETFs.

Disadvantages Of Trading Sustainable Stocks

Despite their popularity, there are some negatives to trading with the best brokers offering sustainable stocks, indices and ETFs:

• Potentially Overvalued – With such a rise in ESG investments, there is a danger that assets such as clean energy have become overvalued compared to their fundamentals. If investors prioritise sustainability over business acumen and company performance, then sustainable stocks, indices and ETFs can lead to mispricing. A subsequent severe market correction could lead to a collapse in the price of sustainable stocks.
• Unspecific Definitions Of Sustainability – Almost all brokers and indices have accepted the ESG criteria as a method of defining sustainability. However, the term was recently shrouded in controversy. In April, the SEC issued a risk alert to investors warning of poor definitions of ESG. Even more worryingly, there have been allegations of financial firms misreporting the ESG compliance of their funds.
• Lack Of Measurable Impact – Despite the influx of investment in sustainable trading options, many investors are frustrated that this appears not to have led to any significant changes in the global environmental outlook. No reduction in continually rising global carbon emissions has occurred, while rainforests are still being wiped out at alarming rates and single-use plastics continue to appear in our lives. Experts advise that the high flow of funds necessary for a transition to a sustainable economy only started recently but investors who are putting their savings into supposedly impactful investments may want to see results sooner rather than later.

How To Find The Best Brokers Offering Sustainable Stocks, Indices & ETFs

Reliable & Legitimate

The first step when searching for the best brokers offering sustainable stocks, indices and ETFs is to ensure they are trustworthy and dependable. While there are many firms with proven track records, some new investors may still be unsure of the legitimacy of a broker.

The most reputable brokers are regulated by an independent body that verifies their authenticity and imposes client protection restrictions, such as the FINRA or the FCA. Investors should also look for reviews or recommendations from trusted websites.

Range Of Accounts

Sustainable stocks, indices and ETFs are purchased for many reasons, with many investors banking on both short and long term growth potential. Thanks to this, sustainable investments often have a place in day trading, long term investment and retirement accounts alike.

Therefore, it is worth checking what investment options and trading accounts a broker offers. For long term or retirement investing, there may be tax-sheltered account options like a 401k or ISA.

Large List Of Sustainable Stocks, Indices And ETFs

As well as looking for the best brokers offering sustainable stocks, it is worth considering whether brokers provide many ETFs, funds or indices as well. Some brokers will only favour either funds or stocks and ETFs for investing, providing competitive fees and a wide range of products for one or the other. The best brokers, however, will find a balance between these approaches, offering a multitude of stocks, indices and ETFs to investors.

Minimum Deposits & Fees

With the mainstream advent of commission-free, zero deposit trading platforms, many single share investors don’t need to worry much about transaction costs.

However, popular brokers that specialise in funds can differ from this approach and some fees are unavoidable, such as the management fees for ETFs and index funds, so it is worth shopping around to find brokers with competitive fee structures for account charges. Some brokers will also have a minimum account limit, so make sure you have sufficient capital to fund a specific brokerage account.

Analysis Tools

Often, investors will want to utilise analysis tools to identify patterns in the performance of a sustainable asset. These patterns can allow investors to pick a suitable entry point for investment or engage in day trading with sustainable stocks and ETFs.

In addition to advanced graphing features, investors may favour brokers that offer dedicated news sections with updates relevant to stocks and funds. This is particularly relevant to sustainable investing, as investors might be curious about the sustainable credentials and innovations of their selected companies.

Trading Platforms

Brokers will often offer bespoke trading platforms to their clients that facilitate smooth analysis and trading. Different brokers will have different aims when designing their platforms, so it is important to find the right one for you. Some brokers may opt for easy-to-use, simple platforms designed for newer traders, though these will often lack the advanced features that experienced traders may be used to.

Conversely, more specialised software may be confusing or overwhelming to newer traders. To combat this division, many brokers offer standard and pro versions of their software to cater to both parties. It is worth checking out the available platforms when looking for the best brokers offering sustainable stocks, indices and ETFs.

Other Notable Features

• Mobile Apps – Trading on the go is becoming increasingly popular with investors. Whether clients wish to monitor their assets on-demand or place trades and alter their portfolio while away from a computer, a reliable and capable mobile app is a must. Check out if a broker has a mobile app and look at reviews on app stores to get an idea of its positive and negative features.
• Educational Content – To help clients trade effectively, many brokers offer a range of educational content for navigating their trading platforms and understanding financial markets. If you are a new investor or simply looking to brush up on your financial knowledge, this can be a useful feature.
• Regular Investing – When investing for the long term or into a retirement account, many traders take advantage of dollar-cost averaging through regular investing. Top brokers offer automated investing for stocks or funds on a trader’s behalf, allowing clients to set up regular investments and then leave the broker to do the rest.

Final Word

For socially and environmentally conscious investors and traders, finding the best brokers offering sustainable stocks is paramount.

However, it can also be a good idea for many others, as stocks, indices and ETFs that incorporate ESG considerations have been competitive over the last few decades.

Concerns around the ESG rating system and its use as a byword for sustainability mean that investors should be wary of false claims and carry out their own research to ensure their personal views and requirements are met. The best brokers offering sustainable stocks and funds will provide breakdowns of assets and in-depth analyses of the companies, allowing clients to rest easy with their ethical investing.

FAQs

What Are Sustainable Stocks, Indices And ETFs?

To be classed as sustainable, a stock, index or ETF must score highly in ESG factors, which incorporate environmental, social and governance considerations. These can be companies that address these issues directly or those that incorporate ESG compliant business principles into the running of their corporation.

How Does Performance Compare For Sustainable Markets?

Sustainable investing is a viable option for both short and long term trading. ESG index funds and ETFs regularly keep pace with and sometimes even overperform the general market, with anecdotal evidence showing that optimising for ESG factors boosts the productivity and therefore performance of a particular company.

Where Can I Find The Best Brokers Offering Sustainable Stocks, Indices and ETFs?

These days, most of the top online brokers are offering sustainable stocks and ETFs, while certain funds may require a more specialised broker. Nevertheless, there are ample options for sustainable investing in all its forms available to investors and traders.

Can I Day Trade With The Best Brokers Offering Sustainable Stocks?

Sustainable stocks and ETFs can be traded throughout the day on their local markets, often with leverage or options contracts. Funds differ in that they can only be bought and sold at the end of the trading day, making them ill-suited for day trading.

Does Using The Best Brokers Offering Sustainable Stocks & Investing Make A Difference?

It is hard to measure the direct impact of sustainable investing. There have been no measurable reductions in carbon emissions or widespread environmental changes since the advent of sustainable investing. However, experts claim that the transition to sustainable living has only just begun and that indicators will take time to appear.